Little Scholars of Ark. Found. v. Pulaski Cty.

689 S.W.3d 428

2024 Ark. 106

LITTLE SCHOLARS OF ARKANSAS FOUNDATION d/b/a Lisa Academy; AP Consolidated Theatres II L.P.; CSRC Charter LISA, LLC; and KLS Leasing LLC, on Behalf of Themselves and All Others Interested, Appellants

v.PULASKI COUNTY, Arkansas; Debra Buckner, in Her Official Capacity as Pulaski County Treasurer; Janet Troutman Ward, in Her Official Capacity as Pulaski County Assessor, Appellees

No. CV-23-616

Supreme Court of Arkansas.

Opinion Delivered: June 6, 2024

APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT [NO. 60CV-22-7085], HONORABLE PATRICIA ANN JAMES, JUDGE

Kutak Rock LLP, Little Rock, by: Jess Askew II, Randal B. Frazier, and McKenzie L. Raub, for appellants.

Pulaski County Attorney’s Office, by: Adam Fogleman, Pulaski Cnty. Att’y; Hamilton Kemp, Deputy Chief Cnty. Att’y; Frank W. LaPorte-Jenner, Deputy Cnty. Att’y; Dominique Lane, Deputy Cnty. Att’y; and Jennifer Link, Deputy Cnty. Att’y, for appellees.

COURTNEY RAE HUDSON, Associate Justice

₁Appellants, Little Scholars of Arkansas d/b/a LISA Academy (LISA Academy; AP Consolidated Theatres II L.P. (Consolidated); CSRC Charter LISA, LLC (CSRC), and KLS Leasing LLC (KLS) (collectively, appellants), appeal from the circuit court's order granting appellees’ motion to dismiss based on a lack of subject-matter jurisdiction to hear the complaint. For reversal, appellants argue (1) that the circuit court did have subject-matter jurisdiction over their illegal-exaction claims that property used for school purposes is exempt from taxes under article 16, section 5(b) of the Arkansas Constitution; (2) that the ₂circuit court erroneously found that the county court had exclusive original jurisdiction of these claims pursuant to article 7, section 28 of the constitution; and (3) that appellants’ declaratory-judgment claim that Ark. Code Ann. § 6-21-118 (Supp. 2023) violates the constitution does not fall within the county court’s jurisdiction under article 7, section 28 and is instead within the judicial power of the circuit courts under amendment 80. Because the circuit court did not have subject-matter jurisdiction, we affirm.

LISA Academy operates ten open-enrollment public charter schools in Arkansas, including seven in Pulaski County. LISA Academy leases the property for its LISA West Middle School in Little Rock from Consolidated. LISA Academy leases the property for its LISA Academy Arkansas Hybrid School in Little Rock from CSRC. These properties are the "LISA schools." KLS owns and leases the Mitchell School in Little Rock to ScholarMade Achievement Place of Arkansas, for its open-enrollment public charter school, Ivy Hill Academy of Scholarship (both schools referred to as ScholarMade).

The appellees in this case are Pulaski County Assessor, Janet Troutman Ward; Pulaski County Treasurer, Debra Buckner; and Pulaski County, Arkansas (collectively, appellees). The Assessor is responsible for appraising and assessing all real property situated within the boundaries of the county, and in 2021, she assessed real-property taxes against the LISA schools and 2021 personal-property taxes against the ScholarMade schools. The property owner appellants requested a constitutional tax exemption under article 16, section 5 from the Assessor. After reviewing the request, she determined that appellants had not established beyond a reasonable doubt their entitlement to an exemption. KLS raised the same issue with these officials regarding an assessment for 2018 and 2019 real-property taxes against ₃the ScholarMade schools and additional properties leased to other open-enrollment public charter schools in Little Rock. After KLS sued for illegal exaction and paid the taxes under protest, appellees refunded the taxes in an agreed order in the county court.

Appellants never filed this case in the county court. On October 13, 2022, LISA Academy and its landlords filed an illegal-exaction complaint in the circuit court and then paid the 2021 taxes under protest. LISA Academy and its landlords also sought a declaration that Ark. Code Ann. § 6-21-118 is void under article 16, section 6 alleging that the statute alters the constitutional exemption for school property, and that the Pulaski County officials appeared to rely on section 6-21-118 when they assessed the 2021 taxes. KLS joined the action by an amended complaint on November 16, 2022, after paying the disputed taxes.

Appellees moved to dismiss each complaint, maintaining that appellants did not state a claim for illegal exaction and that county courts have exclusive jurisdiction over county tax matters. On May 2, 2023, appellants filed a motion for summary judgment arguing that there was no genuine issue of material fact concerning whether the property was being used exclusively for school purposes. Appellees responded that because the lower court did not have subject-matter jurisdiction, it could not grant an order for summary judgment. In the alternative, appellees also argued that there was a genuine dispute over whether the properties were used exclusively for school purposes. The circuit court decided to consider the summary judgment motion after hearing appellees’ motion to dismiss.

During the hearing on the motion to dismiss, appellees conceded that a claim for illegal exaction under article 16, section 13 is properly brought in the circuit court and is an exception to the exclusive jurisdiction of county courts over county tax matters under article ₄7, section 28. However, appellees argued that appellants had failed to state a claim for illegal exaction and that article 7, section 28 therefore required that the case be brought in the county court. Appellants responded that (1) their complaint alleges the property is used exclusively for school purposes; (2) the constitutional exemption of article 16, section 5(b) prohibits taxes on property used exclusively for school purposes; (3) appellees’ taxation in this case is both unlawful and unauthorized, therefore illegal, and that the complaint states a claim for illegal exaction. Appellants then argued that appellees relied on Ark. Code Ann. § 6-21-118 to justify taxation but that the statute is void under article 16, section 6. Appellees agreed that the statute is unconstitutional but argued that its validity is not a basis for illegal exaction because section 6 is not a tax-levying statute.

Without addressing whether the complaint stated a claim for illegal exaction or the declaratory-judgment claim, the circuit court found that it did not have subject-matter jurisdiction over appellants’ claims and that the county court has exclusive original jurisdiction in this matter. The circuit court entered an order dismissing the case on June 16, 2023. Appellants filed their notice of appeal on July 13, 2023.

[1–4] For their first point on appeal, appellants allege that they are entitled to an exemption from assessed taxes under article 16, section 5(b) but that their request was denied and is therefore an illegal-exaction claim. We review de novo whether an illegal-exaction complaint states a claim within the jurisdiction of the circuit court. Robinson v. Villines, 2009 Ark. 632, 362 S.W.3d 870. A suit to prevent the collection of an illegal or unauthorized tax is an illegal-exaction suit, and subject-matter jurisdiction is concurrently in the circuit court. Id. Article 16, section 13 grants standing to the citizens of Arkansas to pursue an illegal- ₅exaction claim. An illegal exaction is defined as any exaction that either is not authorized by law or is contrary to law. White v. Ark. Capital Corp./Diamond State Ventures, 365 Ark. 200, 226 S.W.3d 825 (2006). There are two types of illegal-exaction cases: (1) "public funds" cases in which the plaintiff contends that public funds generated from tax dollars are being either misapplied or illegally spent; and (2) "illegal-tax" cases in which the plaintiff asserts that the tax itself is illegal. Id. Here, appellants are purporting to allege an illegal-tax claim. However, the taxes assessed in this case are ad valorem taxes, and appellants do not argue that ad valorem taxes are illegal. Instead, appellants argue that the assessed ad valorem taxes formed the basis for an illegal-tax claim.

[5] This court has strictly adhered to the rule that, if the taxes complained of are not themselves illegal, a suit for illegal exaction will not lie. Hambay v. Williams, 373 Ark. 532, 285 S.W.3d 239 (2008) (citing Pockrus v. Bella Vista Village Prop. Owners Ass’n, 316 Ark. 468, 872 S.W.2d 416 (1994)). A flaw in the assessment or collection procedure, no matter how serious from the taxpayer’s point of view, does not make the exaction itself illegal. Robinson, 2009 Ark. 632, at 5–6, 362 S.W.3d at 874.

This case is similar to Comcast of Little Rock, Inc. v. Bradshaw, 2011 Ark. 431, 385 S.W.3d 137, in which Comcast brought an illegal-exaction suit claiming that the Arkansas Public Service Commission illegally assessed Comcast’s personal property, which, according to Comcast, was exempt. We held that because Comcast did not challenge the validity of the underlying tax but instead alleged that the assessment was carried out in an illegal fashion because its property fell within a statutory exemption, it does not come within the illegal-exaction provision. Id. We also concluded that a lawsuit to determine whether a taxpayer’s ₆transactions fall within a statutory exemption does not come within article 16, section 13. Id.

[6] Our holding in Bradshaw is directly applicable here. Appellants argue that their properties are exempt under article 16, section 5, and that any assessment of their properties for ad valorem taxes is either unauthorized or illegal. As stated above, appellants do not challenge the validity of ad valorem taxes but rather the application of the assessment. Appellants attempt to distinguish this case from Bradshaw because Bradshaw is a statutory-exemption case while this case involves a constitutional exemption. However,...